For analysts, the market continues to underestimate Cosan's ability to reinvent itself and prosper amid challenging conditions (Image: Cosan/Disclosure)
O BTG Pactual revised its estimates to Cosan (CSAN3), amid the weak performance of the shares of Vale (ELECTION 3) — a company that has a 4.14% stake, the results were slightly weaker than expected from Raízen (RAIZ4) and a less favorable interest rate environment, which led CSAN3 shares to significantly underperform the Ibovespa index (-31% since February).
The bank recalls that just over a year ago it discussed how Cosan shares had become difficult to trade due to the group's increasing complexity and leverage. Analysts later argued that despite these difficulties, the valuation Cosan's did not adequately reflect the holding company's ability to create value through investment cycles, highlighting that this could present an attractive entry point.
As a result, analysts revised their estimates and reduced their proforma EBITDA projections for 2024 and 2025, with net income also being revised downwards due to higher interest rates and a still-leveraged balance sheet.
“While we believe the organic deleveraging process may take longer, we see positive optionality in the company’s potential to reduce leverage through inorganic transactions and portfolio management. Finally, we continue to observe a significant mismatch between the company’s screen price and the value of the assets in Cosan’s portfolio, which translates into a holding discount of 32% currently,” explain Thiago Duarte, Pedro Soares, Guilherme Guttilla and Bruno Lima.
Despite reducing the target price from R$30 to R$23, mainly due to adjustments at Raízen, analysts still recommend buying and predict a potential appreciation of 72% in the next 12 months.
Discount for Cosan and capital allocation decisions
Analysts say the aforementioned challenges and a more leveraged balance sheet have made the thesis more challenging. Although Cosan has made progress in adjusting its capital structure, organic deleveraging may take longer than initially expected, since the dividends received by the holding company were largely consumed by its debt indexed to the Selic rate.
“However, the holding’s 32% discount, one of the largest in history, and its significant underperformance compared to the index lead us to believe that this situation is more than priced in. Or, at least, that the risk/reward is asymmetric to the upside. We believe the market continues to underestimate the company’s ability to reinvent itself and thrive amid challenging conditions.”
Cosan has undergone an extensive debt restructuring process, with the next significant amortization scheduled for 2027. Since liquidity is not a concern, the company has enough time, according to the bank's analysts, to evaluate the right opportunities to manage its portfolio as dividends from subsidiaries improve.
“In addition, we believe that pragmatism will guide Cosan's capital allocation decisions, and we do not rule out opportunistic adjustments, asset sales or even possible IPOs (perhaps Compass in the future?) if market conditions and valuations are considered favorable,” they point out.